If you’ve spent years saving for retirement, you probably don’t plan to spend all your savings. But unfortunately, if you’re not careful, it can happen.
To ensure you spend your retirement years financially stable and comfortable, beware of common mistakes that have derailed even wealthy retirees.
Taking excessive risks
There is a time and a place for taking financial risks, and it’s not retirement.
Wealth advisor Sharon Hayut, senior managing director at Magnus Financial Group, has seen this happen among her clients.
“As an advisor, I often see people taking excessive risks in retirement, leaving them vulnerable to market corrections.”
There is a term for this risk: sequence of returns risk. Long-term average returns on your investments are important, but so are when you have high returns compared to losses. A market crash early in your retirement can wipe out so much of your portfolio that it will never recover.
That same market crash a decade later could move your portfolio up in the long run, because it had a chance to grow before the next bear market.
Lack of an emergency fund
Hayut added that the emergency funds are not just for those who are still working.
“Another common mistake is not having an emergency fund with at least six months of expenses to cover unexpected expenses, whether it be medical care or something as simple as needing a new car. When these mistakes occur, they can significantly impact a person’s financial stability and peace of mind.”
Without an emergency cash fund, many retirees have to sell their investments even if they suffer losses during a bear market. Avoid forced liquidations during retirement as much as possible.
Pay high taxes
Retired or not, you will still have to pay taxes. But with careful planning, you may be able to reduce how much you pay.
“Not using tax-advantaged accounts enough is a common mistake,” said Mike Falahee of Marygrove.com. “Roth contributions are taxed upfront, but not taxed, and withdrawals are not taxed in retirement.”
When the government takes a smaller portion of your income in retirement, you don’t need as much gross income to survive. That, in turn, means you don’t need to have as much money saved in your savings fund.
Not adapting to change
When your circumstances change, your expenses should change too.
“Retirees often fail to adapt their financial plans in response to changing circumstances,” Hayut said. “Life events such as the death of a spouse, unexpected medical expenses or economic crises can significantly impact their financial situation. Regularly reviewing and adjusting your retirement plan can help you stay on track and make necessary changes to avoid financial hardship.”
Pay high withdrawal fees
Hayut said: “Avoiding money mistakes requires careful planning, disciplined spending and a regular review of your finances. “It is important to work with a proactive advisor who can help retirees ensure their savings last throughout their retirement.”
This is what happened to Cem Oezulus, who emigrated to the United States and co-founded a small company called The Brot Box. He retired comfortably, but has since had to adapt on the fly.
“When I retired with a fortune, I didn’t expect excessive spending and high withdrawal rates to deplete my savings so quickly,” Oezulus said. “Poor investment decisions and lack of diversification added to the financial strain. “These mistakes forced me to drastically modify my lifestyle and adopt a more cautious financial approach.”
Ignore available benefits
Most people don’t realize how many benefits they are entitled to or how many programs are available to them.
Attorney Marty Burbank of OC Elder Law sees this all the time among his retired clients.
“Many of my clients, especially military veterans, were not fully aware of the benefits available to them through programs like Aid and Attendance. “I once worked with a veteran who lost thousands of dollars in benefits simply because he didn’t know how to apply.”
Burbank added: “Taking advantage of all potential sources of income and support can make a significant difference in retirement security.”
Whether you retire with $300,000, $3 million, or $30 million, you can lose it all if you’re not careful.
Avoid overspending, have an emergency fund, and if possible, meet with a financial planner or advisor. You don’t have to hand over all your money to them to manage for you; you can simply pay a flat fee or an hourly fee to receive expert advice.
It could mean the difference between a comfortable retirement and one where you spend all your time saving.
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